Northern Ireland to Abandon Wells v Wells Approach When Setting the Personal Injury Discount Rate

In a bid to quell fears that the personal injury discount rate (PIDR) in Northern Ireland was going to be slashed from 2.5% to (-)1.75% by way of statutory consultation, we reported, in edition 310 of BC Disease News (here), that a public consultation, entitled: ‘The personal injury discount rate: How should it be set?’, had been launched to establish a new legal framework supplementing future rate adjustments.

The consultation period ran from 17 June 2020 to 14 August 2020 and, on 23 October, the Summary of consultation responses and next steps was published on the Department of Justice (DoJ) website – read the full document (here) and the most pertinent conclusions below:

‘3.8 In the consultation paper, we suggested that either of the legal frameworks used in England and Wales or Scotland would be a suitable model for Northern Ireland, but also asked for suggestions for any other models. While the majority view from the consultation preferred the England and Wales model [17 in favour of England and Wales and 4 in favour of Scotland)] owing to its flexibility and greater amount of discretion for a Minister, the Department takes the view that transparency and clarity, as offered by the notional portfolio of the Scottish model, are important features for a new framework. Given the importance of the actuarial input to setting the rate, it is appropriate to be clear as to the basis of the actuarial calculations and for this to be fixed by the Assembly. A statutory portfolio, drawn up on expert advice, and reflecting a low-risk strategy that realistically reflects how a claimant might invest his or her lump sum, provides ‘up-front’ information to everybody about how the discount rate is calculated. If the rate is to be calculated on the basis of a notional statutory portfolio, then the Government Actuary is, of course, best placed to carry out this exercise as is the case in Scotland and we see no need for any additional expert input, other than those whom the Government Actuary may choose to consult.

3.9 We will … reflect further on the detail of the Scottish notional portfolio in consultation with the Government Actuary’s Department. In particular, we recognise the point made by some respondents that the assumed investment period of thirty years that is prescribed in the Scottish legislation may not accord with the average or typical investment period for a lump-sum award of damages. We note the investment period relied upon in England and Wales was forty-three years. We will also ask for GAD’s advice on changes to the investment market since the Scottish legislation was made that would suggest that we should refine the prescribed investments in the notional portfolio.

3.11 In respect of reviewing the rate, we accept the consensus from the consultation that there should be a statutory duty for a regular review. We also concur with the consensus that the interval between statutory reviews should be five years … a five-year interval allows for a period of stability, while also ensuring that the discount rate does not diverge substantially from changing market conditions for any significant length of time. We also consider that it would be prudent to provide a power for the Minister to order a review sooner than five years to allow a new rate to be considered in response to an unexpected change to economic or financial circumstances’.

Foreshadowing publication of the Summary, on 22 October, DoJ representatives presented evidence to the Committee for Justice (CfJ) at Stormont and tabled plans for ‘accelerated passage’ of a Bill akin to the Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019.[i]

Under this hypothetical Bill, the existing Damages Act 1996 approach, which imported the House of Lords’ assumption, in Wells v Wells [1998] UKHL 27, that claimants invest their lump sum damages extremely cautiously in ‘very low risk’ index-linked Government gilts, would be reformed. In its place would be an assumption that claimants invest their damages in a mixed portfolio of ‘low-risk’ investments. It cannot necessarily be assumed that the Scottish (-)0.75% rate will be mirrored, though.

Provided that a new methodology can be recommended ‘as quickly as possible’, Deputy Director of Civil Justice Policy, Laurene McAlpine, envisions a Bill being introduced in January or February of 2021, with Royal Assent subsequently granted by September of that year.

What is more, if the Northern Irish approach were to reflect the Scottish position on the date the rate must be set (90-days post-statutory implementation), one might presume that a revised PIDR could be in force by December 2021 at the latest.

Without Committee backing, however, it could be 2022 before new provisions take effect.

For now, the Committee is unconvinced of the merits of ‘accelerated passage’ and Justice Minister, Naomi Long MLA, will be called to provide additional evidence in due course. She has also recused herself from policy decisions on the Bill, owing to a conflict of interest. A request has been submitted for the Permanent Secretary adopt Ms. Long’s responsibilities in this regard.

On an interim basis, the PIDR in Northern Ireland will be fixed at 2.5%. Time is therefore of the essence with the prospective Bill, because there is likely to be disruption and resistance (from the claimant side) towards the resolution of active claims under a rate which is all but guaranteed to decrease.

 

[i] Louise Butler and Alison Cassidy, ‘DOJ to scrap plans for -1.75% personal injury discount rate in Northern Ireland’ (23 October 2020 DAC Beachcroft) <https://www.dacbeachcroft.com/en/gb/articles/2020/october/doj-to-scrap-plans-for-175-personal-injury-discount-rate-in-northern-ireland/> accessed 30 October 2020.

Amanda Wylie, ‘Northern Ireland moving towards new framework for setting the personal injury discount rate’ (23 October 2020 Kennedys) <https://kennedyslaw.com/thought-leadership/article/northern-ireland-moving-towards-new-framework-for-setting-the-personal-injury-discount-rate/> accessed 30 October 2020.

Alistair Kinley, ‘Significant news on the discount rate in Northern Ireland’ (22 October 2020 BLM) <https://blmpolicyblog.com/2020/10/22/significant-news-on-discount-rate-in-the-northern-ireland/> accessed 30 October 2020.